I recently (March 1 - 12, 2004) stayed at the Hostal Sonsoles located on Fuencarral. I found this to be an excellent place. Granted it did not have too many emenities (no breakfast, no satelite t.v., etc). The room was big, the bed was big (not too small beds pushed together), and it was very reasonable (maybe 40 euros for a double-sized room). It was only a few minutes walk to the Gran Via (right at the Gran Via metro stop) and then only a few more minutes to the Puerta del Sol. I liked the place so much I cancelled my reservation at another Hotel.
Also for some reason on the website here (which is an excellent website) the Hostal Sonsoles is listed as a "gay" hostal. While it may be in a section of town that is considered "gay", (Chueca), it seemed that everyone staying at the Hostal (I think about 30 rooms) were couples.
Once again if you are looking for a place with a great location, a good enough room, and you are looking for a great price, I highly recommend this place.

Neil